Facebook’s $5 Billion IPO: The Next Google? Or The Next Groupon?

On Wednesday, Facebook filed the prospectus for its initial public offering. The social giant seeks to raise $5 billion in initial funding. That’s in line with some of the largest IPOs in technology history, and it comes eight years after the company was first launched in the Harvard dorm room of CEO Mark Zuckerberg. According to the company’s IPO filing, in 2011, it recorded revenue of $3.7 billion, operating income of $1.75 billion, and net income of $1 billion. While the company’s S-1 filing does not list how much shares will cost upon the date of the IPO, Facebook’s most recent estimate as of December 31 puts the per share price at $29.73.

Given Facebook’s size and popularity — the social network has over 845 million members worldwide — eight years is actually quite a long time. Over that period, Facebook had unprecedented access to capital, and on sites like SharesPost and SecondMarket, pre-IPO prospectors have been able to purchase and trade shares in the company from employees and other early stakeholders. The company’s relative maturity means that most of the millions — or billions — that could be made from buying public shares have probably already been made.

This could mean Facebook’s IPO will meet a fate similar to that of this year’s other high-profile tech IPOs. Both Zynga and Groupon actually sank below their IPO share price — right out of the gate — a sign of failure on Wall Street. “The tech class of 2011 has underperformed,” said Paul Kedrosky, a prominent financial blogger and senior fellow at the Kauffman Foundation, in an interview. “Because of secondary markets, that post-IPO balance happened pre-IPO. My expectation is, Facebook will see a very similar phenomenon.”

Regardless, the IPO will put cash in the pockets of the many paper millionaires surrounding the company, and it will inject a massive amount of capital into Facebook’s coffers. This capital will allow the company to invest more in its products and grow its revenue streams. But this comes with its own problems. In order to grow revenues, some analysts believe, Facebook must find a way to better target ads on its service. This means tapping the vast array of personal data it has collected about its users, which could easily raise the ire of both users and government regulators.

And fine-tuning its ads is crucial, given that it’s the company’s predominant revenue stream: Currently, advertising accounts for 84 percent of the company’s $3.7 billion in revenues.

What’s more, when the company is traded on public markets, it must be more transparent and more regularly disclose its finances and activities. Soon, all prospective investors — that is, everyone — will be privy to information the company has previously been reluctant to share beyond a close inner circle of early investors and friends.

Facebook is a paradox. Throughout its history, it has been both open and closed. It began as a closed social network for Harvard students, but within that closed network, it sought to push the boundaries of each user’s privacy. So much of Facebook’s culture — especially its boundary-challenging, generation-defining norms of sharing and privacy — stems from those early days as a place where Harvard students could meet, socialize, and share (often embarrassing) photos of each other.

The irony is that there were fierce fights about whether to open the network to students from other colleges. Facebook eventually opened the service not only to other colleges, but to the world at large, and it gradually changed the service’s default privacy settings so that more and more data was shared among its members. But at the same time, it has consistently sought to extend the sense of comfort that comes from a private network.

The company’s funding process has followed a similar trajectory. After early investments by elites like Sean Parker and Accel Partners’ Peter Thiel, the fledgling company opened itself up to an “Ivy League” of investors. This includes institutional investors and partners like Microsoft, but also a cleverly brokered deal from Goldman Sachs that allowed both the investment bank and its private clients to buy over $2 billion in Facebook stock at a $50 billion valuation.

Now, it’s going completely public. And this will force the company to seek new revenue. As it does so, it will have to make use of all that data openly shared by its members. But as usual, it must also ensure that it doesn’t push the boundaries too far.

According to IPO paperwork Facebook filed Wednesday, Mr. Zuckerberg owns about 28% of the soon-to-be-public company, and is its single largest shareholder. If Facebook raises money at a high-end valuation of $100 billion, Mr. Zuckerberg’s stock would be worth $28 billion.

On top of his stock, last year Mr. Zuckerberg was paid $1.49 million in salary, bonus and other compensation for his role as chief executive, according to the regulatory filing.

Facebook’s filing added that Mr. Zuckerberg will sell shares in the IPO, but didn’t stipulate how many. It said that he will use the proceeds to pay taxes.

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a website worth more than mcdonalds or nike..its just a website..dot com bubble anyone?

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Social Media Stocks: All Hype, No Profit?
By Louis Basenese, Chief Investment Strategist

The Facebook IPO is coming! The Facebook IPO is coming! The Facebook IPO is coming!

After relentless speculation and anticipation, the most popular social network site finally filed for its initial public offering (IPO) yesterday.

Sadly, we’ll have to endure another couple months of “friending fever” before shares actually begin trading. (The anticipated IPO date is sometime in May.)

While we wait, no doubt investor interest in other social media stocks is going to heat up. But please don’t let the hype push my warnings of a few weeks ago into the dark, deep, unreachable recesses of your mind. (WSD’s Justin Fritz has some choice words on the subject, as well.)

Almost without exception, social media IPOs have proven to be a sucker’s bet. To date, none of the hype has translated into any profits for everyday investors. And I don’t expect that track record to improve any time soon.

Here’s why…

Zynga: Still a Skeptic

Aside from Facebook’s IPO filing, the next biggest news in the social media space of late is that social-gaming company, Zynga (Nasdaq: ZNGA), is considering expanding into online gambling.

Some will argue the move is logical. After all, Zynga already runs the country’s most popular online poker game, Zynga Poker. So it would just be tapping into its user base to offer another product of interest.

My response: Anybody home? Huh? Think, McFly. Think!

Remember, Zynga was only founded in 2007. By all standards, it’s still an infant. And yet management is already looking for new growth opportunities?

Forget being overly reliant on Facebook. Forget operating in a hit-driven industry. Forget about deriving the overwhelming majority of its revenue (96%) from a microscopic minority of its users (3%). Changing focus so early on is the biggest red flag of all for Zynga’s stock!

I mean, think about it. Currently Zynga operates a business with first-mover advantages and limited competition. A move into online gambling, however, would carry none of those benefits.

Not to mention, it introduces and exposes the company to a world they know very little about. Namely, regulation.

In the end, Zynga’s management is sending a message to investors that growth for its core business is already waning. After only seven years. And it’s waning so much that they’re on the hunt for new growth opportunities in industries completely outside their core competencies.

Given all that, I stand by my conviction to avoid Zynga’s stock. Even in the face of “Buy” recommendations from Wall Street titans, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), JP Morgan (NYSE: JPM) and Barclays Capital. (They were all underwriters for the Zynga IPO, by the way, so they’re probably not the most unbiased parties. Just saying.)

Groupon is Guilty, Too!

Sadly, Zynga’s actions aren’t isolated. They’re symptomatic of a much larger problem in the social media industry.

Well before it went public, we panned the stock. And for good reason. It, too, is guilty of expanding outside its core competencies too soon in its life cycle.

The company went from offering a single product – daily deals for consumers in their local markets – to expanding into an ever-increasing list of products. Groupon now offers travel deals, event tickets and retail products.

Keep in mind, this is the company that literally created the online deals market in 2008. Now, just four years later, it’s looking for growth in highly competitive markets dominated by the likes of eBay (Nasdaq: EBAY), Amazon (Nasdaq: AMZN) and Travelzoo (Nasdaq: TZOO).

That’s a problem. Clearly, its early growth and original business model isn’t sustainable. And the latest results bear it out. Margins are shrinking, down from 44% of billings in the first quarter to 37% in the third quarter of 2011.

Bottom line: The fundamentals that shot social media companies to instant stardom are already fading. That doesn’t bode well for future share prices. And when the history books are written, I’m convinced the only ones who will have profited from all the hype are going to be the investment bankers, not everyday investors like you and me.

Honestly…. I hate to say it but I think this will be Googlish / Applish.

This company is too important for tptb. Similar to how google is important to these fuggers.

I believe it will get a very high valuation REGARDLESS of how profitable. Not gonna touch this stinky pile of dog poo, however this company is very important and will not just tank and go away UNFORTUNATELY.

Wait til everyone inputs their CC info and one click buys for stupid apps like apple store appear for all u FB fuggers out there!

Facebook, I am sure you mean TRACEBOOK. The value of it should be $0.00 as it is nothing more than a nuisance. If anyone follows this you will make money yes, but the question is how long will it last? Do NOT support this company if you have any smarts in you head. If you when the tracing chips come you better have your arm and don’t do any complaining.

” Military men are just dumb stupid animals, to be used as pawns in foreign policy. ” – Henry Kissinger

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” How pale is the art of sorcerers, witches, and conjurors when compared with that of the government’s Treasury Department! ” – Ludwig von Mises

“ It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. ” – Henry Ford

” To you, Sovereign Instructors of Grade 33, we tell you: you have to repeat to the brothers of inferior grades that we worship only one God to whom we pray without superstition. It is we, initiated in the Supreme Grade, that are to keep the real Masonic religion preserving pure the Lucifer doctrine. ” – Albert Pike

” The Jesuits…are a secret society – a sort of Masonic order – with superadded features of revolting odiousness, and a thousand times more dangerous. ” – Samuel Morse

” If I were reincarnated, I would wish to be returned to earth as a killer virus to lower human population levels. ” – HRH Prince Phillip

“ I have learnt most of all from the Jesuit Order. So far, there has been nothing more imposing on earth than the hierarchical organization of the Catholic Church. A good part of that organization I have transported direct to my own party. The Catholic Church must be held up as an example. I will tell you a secret. I am founding an order. In Himmler (who would become head of the Nazi party) I see our Ignatius de Loyola (Jesuit founder). ” – Adolph Hitler

” In order to stabilize world population, we must eliminate 350,000 per day. ” – Jacques Cousteau

“ Give me control of a nation’s money and I care not who makes it’s laws. ” – Mayer Amschel Bauer Rothschild

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” … in politics nothing is accidental. If something happens, be assured it was planned this way. ” – Franklin D Roosevelt

” It is my opinion that if the liberties of this country – the United States of America – are destroyed, it will be by the subtlety of the Roman Catholic Jesuit priests, for they are the most crafty, dangerous enemies to civil and religious liberty. They have instigated MOST of the wars of Europe. ” – Marquis de LaFayette

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” The United Nations is but a long range, international banking apparatus clearly set up for financial and economic profit by a small group of powerful One World revolutionaries, hungry for profit and power. ” – curtis dall

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